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Production Possibility Frontier Cheat Sheet by

Economics
production     labour     economics     econ200     ppf     possibility     frontier     commodities     efficiency     inputs     goods     services     scarcity     opportunity     scale     materials

Efficiency

PPF typically repres­ented by a curve graph
An economy operating on the PPF curve efficient (would be impossible increase production of one good without lowering production of another.
Below the curve = inefficent as resources could be relocated to produce more of both goods
Atta­inable point
Anything on or within the curve can be attained with current resources
Unat­tai­nable point
Anything outside the curve cannot be attained with current reources.
Inef­ficient points
Inside the curve, because not all resources are being used
Efficent point
On the curve. More of one good can be produced by sacrif­icing another

Resources

Production possib­ility changes based on bias of skills and resources
Resources may not be suited to producing the opport­unity, therefore losing a higher potential
Resources are finite, not unlimited
By expanding the PPF a firm can produce more. Expand via improved techno­logy, or by bringing on more labour for example
 

PP Curve

Opport­unity cost

Opport­unity cost is the highest value altern­ative which must be given up to engage in an activity
Changes in Op Cost
Increases in op costs
The Law of Increasing Opport­unity Cost holds that the value of forgone production increases as the quantity of a good increases. The reason for this is resource variab­ility. When all resources are used for one production some are well suited and others are not.
Decreases in op costs
In this case, opport­unity cost actually decreases with greater produc­tion. While opport­unity cost can decrease in limited circum­sta­nces, this is unlikely to happen for the economy as a whole.
Remaining constant
The oportunity cost does not change with produc­tion, not realistic for whole economy but does happen someti­mes.The economy forgoes the same amount of one good while producing more of the other
 

Four Assump­tions

Simplifies economies into one or two goods. Makes it simple to graph. More can be worked out with advanced maths.
Assumes resources do not change.
Assumes the knowledge and inform­ation society has for these products is fixed
Assumes technical efficency, that is max production is being reached from inputs

Concepts

The most important economic concepts illust­rated using production possib­ilities analysis are
Opport­unity Cost
As more of one good is produced, less of the other goods is produced.
Full Employment
Producing on the PPC. All resources are engaged in production
Unempl­oyment
Producing within the PPC. All resources *are not engaged in production
Economic Growth
Indicated by an outward shift of the PPC.
Investment
Indicated by a tradeoff between the production of consum­ption goods and capital goods.

Slope

The slope of a line is measured by calcul­ating the change in the value measured on the vertical axis divided by the change in the value measured on the horizontal axis.
Slope = Difference in Vertical (Rise) / Difference in Horizontal (Run)
Slope = Δ Rise / Δ Run

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